Some major franchise brands include McDonald’s, 7-Eleven, and Jiffy Lube. While estimates vary, there are over 3000 franchise brands operating more than 792,000 franchise units in the United States alone.  

Franchising offers entrepreneurs the ability to capitalize on an established brand while still running their own business. The franchisor provides training and support to maintain brand consistency across all locations. 

Franchisees follow the proven business model or system that the franchisor has developed, which covers everything from menus to marketing. There is less risk involved in starting a franchise compared to an independent startup because the business concept has already been tested.

Upfront costs for a franchise typically include a franchise fee to the franchisor as well as initial investment for real estate, equipment, inventory, working capital, etc.

Ongoing expenses involve paying a royalty percentage to the franchisor as well as following brand guidelines for marketing and operations. Franchise agreements usually last 5-20 years and outline the franchisor-franchisee relationship.

The pros and cons of franchising should be examined closely before signing any agreement or seeking funding. But for many entrepreneurs, franchising provides a proven model to follow on the path to business ownership and financial success.

Franchise Funding Options

When starting a franchise, securing sufficient capital is essential but can also be a major challenge. 

On average, the total investment to open a franchise ranges from $50,000 to over $2 million depending on the brand and industry.

Fortunately, there are a variety of funding sources potential franchisees can tap into.  Here are just a few:

Personal Savings & Investments – One of the first places to look is your own finances. Personal savings, retirement accounts, stocks & bonds, home equity lines of credit and cashing out other assets can potentially fund part or all of franchise startup costs. Having “skin in the game” is also important for securing outside funding sources.

SBA Loans – The Small Business Administration guarantees loans made by banks and lending institutions to small businesses and franchises. SBA 7(a) and 504 loans have longer terms and lower down payments than conventional bank loans. Borrowers must qualify based on credit, experience and other factors. 

Traditional Bank Loans – In addition to SBA-guaranteed options, banks can offer commercial loans, equipment loans, credit lines and other financing for franchises. A solid business plan and strong credit score helps in getting approved.

Rollover for Business Startups (ROBS) Plans – ROBS lets prospective franchisees use funds from a 401(k) or other retirement account to finance a franchise without early withdrawal penalties. It involves setting up a C-corporation that sponsors a new retirement plan account to “purchase” the franchise location.

Crowdfunding – Raising smaller amounts of capital from a large number of investors online through sites like Kickstarter and Fundable can be an option. Various rules apply so crowdfunding for equity stakes vs donations/rewards programs.

Grants & Incentives – Federal, state and local programs exist to support small business and franchise startups through grants, tax breaks and other incentives. Opportunities can vary greatly by location and eligibility. 

Friends & Family – For some, asking family members or friends to invest in their franchise is a viable fundraising source. Make sure to formalize any agreements and follow securities laws.

With preparation and a well thought out funding strategy, franchise hopefuls can discover many avenues to obtain the necessary capital to start their business and achieve their dreams.

Let the experts at All American Franchising Consultants help you find the perfect franchise funding option.

Tips For Securing Franchise Funding

The key to securing financing for your franchise is being prepared and approaching funders strategically. Here are some top tips to improve your chances of getting funded:

– Create detailed financial projections – Lenders and investors will want to see forecasts for revenue, expenses, profit and cash flow. Conservative and realistic projections show you have done your homework.

– Have a solid business plan – All funding sources will require a business plan covering your franchise operations, marketing, financials and more. Follow the SBA’s outline.

– Seek professional advice – Connect with a qualified accountant and lawyer to ensure you meet all requirements and documentation for financing. 

– Get pre-qualified – Talk to banks and lenders early and get pre-qualified so you know how much you can borrow. This also shows proof of funds to the franchisor. 

– Be ready to personally guarantee – Most franchise loans will require owners to personally sign as borrowers and guarantee repayment no matter what. Know the risks.

– Highlight passion and skills – Funders want to work with committed, smart business owners. Sell yourself and why you’ll succeed.

– Explore all options – Look beyond just taking out a traditional loan. Alternative funding like crowdfunding or ROBS plans may work.

– Follow up relentlessly – Persistence pays off. Check in regularly during the application process and provide any requested info quickly. 

With the right funding mix and strategic approach, your franchise dreams can become reality. Don’t get discouraged by initial rejections from lenders. Persevere and explore all options. The investment will be worth it.

Let Us Help You Secure Franchise Funding

Starting a franchise is an exciting opportunity to own your own business, but reaching that goal requires securing the necessary financing. 

We’ve reviewed the basics of franchising, estimated startup costs, tips for funding, and different options from savings to loans to alternative sources.

The key takeaways are:

– Conduct thorough research on the total investment needed for your desired franchise model and location. 

– Work with a professional team to build your funding application, including detailed financial projections and business plan.

– Explore a mix of financing options beyond just traditional loans. 

– Follow up persistently with funders and provide requested information quickly.

The funding process takes time but the rewards are worth it.

For personalized guidance with securing capital for your franchise, contact the experts at All American Franchising Consultants.

Our advisors can help you identify your best funding sources, introduce you to lenders, assist with applications, and give you the best shot at getting approved. 

Reach out today to get started on making your franchise ownership dream a reality with our support.